The next generation of founders are building better businesses. It's time the law caught up

In 2007, I submitted my university dissertation.

The dissertation imagined a fictional island that was being built from scratch. Starting with a blank sheet of paper, I explored what kind of economic system we might create if we had the opportunity to start over.

The dissertation posed the question – “what if businesses were measured not just on profit, but also on their impact on people and planet?”

I proposed a framework that assessed company performance across all three dimensions. The better a company performed for people, planet and profit, the greater the share of profits that could be distributed to shareholders. Conversely, businesses that generated strong profits by creating negative outcomes elsewhere would see limits placed on what could be extracted.

At the time, I knew very little about purposeful business, stakeholder governance or corporate reform, I was just eternally optimistic and somewhat idealistic.

But, the idea of aligning the interests of investors with the long-term interests of society just made sense to me.

Twenty years later, that dissertation feels more relevant than ever.

Because whilst the world has changed dramatically over the last two decades, the rules governing how many businesses operate have remained largely unchanged.

And increasingly, the gap between the economy we have and the economy we need is becoming impossible to ignore. 

20 Years, Same System?

The Companies Act is now twenty years old.

When it became law, Facebook was in its infancy. The iPhone hadn't been launched. Artificial intelligence was a thing of science fiction. The global financial crisis was still over the hill.

Today, businesses operate in a world shaped by economic constraints, climate change, rapid technological disruption, geopolitical instability, growing pressure on public services and declining trust in institutions.

Customers expect more from the businesses they buy from. Employees expect more from the businesses they work for. Society expects more from the businesses that help shape our economy. Yet much of company law remains rooted in assumptions from a different era.

For decades, we have organised our economy around the idea that businesses should maximise profits for shareholders, but increasingly, we can see the limits and the shadow effect of that thinking.

 
The Law Tells Directors That Shareholders Come First. That's No Longer Good Enough

Look around the UK today – or the world more broadly - and it is difficult to argue that the current system is consistently delivering the outcomes people want.

We have seen companies dismiss large numbers of workers and replace them on less favourable terms.

We have seen water companies continue to pay billions to shareholders whilst ageing infrastructure struggles to cope with growing demands.

We have seen periods where energy companies have reported extraordinary profits while households faced impossible choices between heating and eating.

I appreciate none of these examples are quite as simple as the headlines suggest, but I think they do point to a broader question: when business leaders are legally and culturally encouraged to prioritise shareholder returns above almost everything else, should we really be surprised when those outcomes emerge?

To be clear, the issue isn't that businesses pursue profit - profit is vital. Profitable businesses create jobs, drive innovation and generate the economic growth that society depends on. The issue is what happens when profit becomes the only lens through which success is measured.  

The Founders Building The Future

The encouraging news is that many founders have already moved beyond this way of thinking. Every day at Virgin StartUp, we meet founders building businesses that are proving a different model is possible, including the likes of:

• Dash Water, which tackles food waste whilst building a fast-growing consumer brand.

• Ocean Bottle, which collects ocean bound plastic whilst building the best reuseable drinks bottle on the market.

• Oddbox, which helps rescue surplus produce from farms and get it onto people's tables.

• UpCircle, which transforms ingredients that would otherwise be discarded into premium skincare products.

To name a few. These businesses are not sacrificing commercial success in pursuit of purpose. They’re demonstrating that purpose can be a source of commercial success. Their customers care. Their employees care. Increasingly, investors care too.

The challenge is that these businesses remain the exception rather than the rule. If we believe this is the direction business should travel, then we should be asking how we create a system that encourages more businesses to operate this way.

The Economic Case for Better Business

Too often, discussions about purposeful business are framed as a moral argument, but I believe they should increasingly be framed as an economic one. Britain has spent years searching for ways to unlock growth. Successive political parties, Prime Ministers and Chancellors have made the case for differing tax policy, planning reform, industrial strategy, skills, infrastructure and regulation, etc.

Whilst all of these are clearly important levers, perhaps we've overlooked something more fundamental: the way businesses themselves are governed and the role they should play within society.

Research commissioned by B Lab UK and conducted by Demos found that purpose-led businesses are more likely to invest in innovation, spend on research and development, invest in their people and achieve stronger growth than conventional peers. The report estimates that a more purpose-led economy could add £149 billion to UK GDP whilst significantly increasing investment and innovation across the economy.

Whether the exact figures prove right or wrong over time is almost beside the point. The broader conclusion is compelling - businesses that take a broader, longer-term view make better businesses. 
 
They are more resilient. They innovate more. They invest more. And they create value more sustainably.

At a time when Britain is desperately looking to unlock economic growth, this isn’t something that should be overlooked.

 
Why Voluntary Change Isn't Enough

One argument often put forward is that businesses should simply choose to do better. Many already do, but clearly, voluntary action has limits.

I recently read an analysis suggesting that 85% of products produced by the 18 largest food manufacturers fall below the World Health Organisation's ‘Nutrient Profile Model’ threshold and should therefore not be marketed to children - especially because of their levels of fat, sugar, or salt (source: Ravenous, Henry Dimbleby).

Many of the CEOs in the sector recognise this challenge and would welcome a shift towards healthier products - but acting alone can create commercial disadvantages.

If producing healthier alternatives costs more, moving first can mean losing market share to competitors who continue operating under the old model. This is precisely where good regulation has a role to play.

Not by punishing businesses, but by creating a level playing field that rewards long-term value creation rather than short-term profit maximisation.

The same principle applies across sustainability, employment practices and countless other areas of business. 

Why the Better Business Act matters

This is why Virgin StartUp is proud to support the Better Business Act.

At its core, the campaign is calling for a simple change: to update company law so that directors are required to balance the interests of employees, customers, communities and the environment alongside the interests of shareholders.

Not instead of shareholders, but alongside them.

To be clear, this is not an anti-business agenda – far from it. This 100% pro-business, just not ‘business as usual’.

It recognises that the businesses best equipped to thrive over the next twenty years are those that create value for a broad range of stakeholders, not just one.

It reflects what many founders in the Virgin StartUp Community understand instinctively. Long-term success depends on balancing profit with broader responsibility and sustainable growth comes from creating value, rather than always looking to extract it. 

The Companies Act 2.0

Twenty years ago, as a student, I had the luxury of imagining what an economy might look like if we started from scratch.

In reality, we don't have the luxury of starting over, but we do have the opportunity to improve the system we have and to build on the lessons and learnings from the last twenty years.

As we look towards the next twenty years, the Better Business Act offers an opportunity to build the economy we need.

Because the most successful businesses of the future will not be those that focus solely on profit. They will be those that recognise that profit is strongest when it is built alongside purpose. 
 
Find out more about the Better Business Act and join over 3,000 companies campaigning for better business here.

- Written by Andy Fishburn, Managing Director of Virgin StartUp